Planning for the future… – Part 2 – Debt techniques

Debt Snowballs and Avalanches

​No, I am not looking to get you further in debt.  If you are anything like me, then you’ve mastered that part.  In the last post I mentioned a couple terms that are exceptionally useful in terms of getting rid of debt.  Debt snowball and Debt avalanche are two different approaches to the same goal.  Let’s get right into this.

The techniques

Essentially, it has you pay the minimum payments on your debts for all except one.  This special debt will be known as your “focus” debt.  Where they differ, however, is what becomes the focus debt.  The debt snowball focuses on your account that has the lowest balance and pays it off.  This results in faster results to get the “ball rolling”.  Debt avalanche, however, focuses on your account that has the highest interest rate.  This method takes longer for your first win, but it tackles those ridiculous interest rates in order.

​Which is better?

​Personally, debt avalanche makes the most sense to me.  Pursuing the highest interest rates first minimizes the amount I will end up paying total over the life of the payback period.  However, I cannot discount the positive reinforcement that comes from the snowball method getting rid of your first debt faster.  I suppose it is best left up to each individual to decide.  Compare the interest in total across both methods and decide whether or not the difference is worth it.

​Why are we talking about debt?

​Student loans are out of control.  Borrowers are not finding jobs that allow them to pay as much on their loans.  Creating some kind of system that helps you get this under control is imperative.  Additionally, debt of any kind can benefit from either of these systems, assuming of course you aren’t penalized for early repayment.

​This really sounds like a lot of work…

​Well, you are in luck.  Since part 1, I have found a tool online that makes this whole process as easy as getting your account balances and interest rates.  Undebt.it is an exceptional tool for doing the very things that I wasted invested my time doing manually.  The free account has pretty much everything you need, but for $12 a year you can get some cool features.  Things that are sure to excite your next date night, such as amortization tables.  Seriously, I started the 30 day pro trial for this feature alone.

​Give it a shot and see what works for you.  If you are stuck, they site has an incredibly responsive support team.  If you want to reach out to me, feel free to.  I would love ot hear your experience with this or any tool that works.

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